Kernel settles sale of sugar to state at a premium

Kernel (KER PW) reported yesterday it settled a sugar contract supply issue with the state. The parties agreed on the delivery of 75.7 kt, as signed in August 2011, in May 2012 with no change in the selling price: USD 890/t ex-VAT.

Yegor Samusenko: The news is positive for Kernel as the price agreed in the contract was well above the current market price of USD 540/t, implying a USD 26.5 mln premium to the market for the full size of the contract. The contract initially was signed with delivery expected by December 2011, then Kernel reported in its 1HFY2012 financials released in February 2012 that there was a court trial underway, with the state aiming to break the contract. Though Kernel’s management assured investors it expected the contract to be executed by the end of FY2012, the news was clearly negatively perceived by the market. We expect a positive market reaction now as the sum at stake amounts to 7% of FY12E EBITDA.